SpaceX’s Wireless Ambitions Could Be A Windfall For CCI — Bernstein Analyst Calls It the ‘Best Beneficiary’

• Rezaei said the SpaceX deal could effectively introduce a new carrier to an industry that has long relied on three major customers: AT&T, T-Mobile and Verizon.
• She added that this could be significant because the economics of the tower business become increasingly attractive as additional carriers lease space on existing infrastructure.
• Rezaei said that SpaceX's push into wireless could demonstrate that satellite connectivity and terrestrial networks are complementary rather than competing technologies.

Space Exploration Technologies Corp. (SPCX) is making a bigger push into the wireless business, and Wall Street is already trying to figure out which companies could benefit most from the move.

During an interview with CNBC, Bernstein senior analyst Madison Rezaei highlighted a potentially unexpected group of winners, which are the companies that own the towers supporting America's cellular networks.

SpaceX shares gained more than 1% during the regular trading session, and rose 0.1% further in the after-hours trade. Shares of Crown Castle Inc. (CCI) soared nearly 16% in the regular session, and edged up by 0.1% in the afterhours trade.

SpaceX Could Add A New Customer To Cell Towers

Rezaei said the SpaceX deal could effectively introduce a new carrier to an industry that has long relied on three major customers: AT&T Inc. (T), T-Mobile US Inc. (TMUS) and Verizon Communications Inc. (VZ).

"We suddenly have a new carrier on the tower companies," Rezaei said.

She added that this could be significant because the economics of the tower business become increasingly attractive as additional carriers lease space on existing infrastructure.

"Once you've built up the tower, every incremental tenant that you add is very, very profitable," Rezaei said.

According to Rezaei, the potential addition of SpaceX as a customer could translate into a roughly 10%-15% increase in recurring revenue for tower companies.

The key question, however, is which tower operator is best positioned to capture that opportunity.

Rezaei Explains Why CCI Could Be The Biggest Winner

Rezaei pointed to Crown Castle Inc. (CCI) as the strongest beneficiary of SpaceX's wireless ambitions, largely because of its exposure to the U.S. market.

"Crown is the best beneficiary today," Rezaei said.

Unlike American Tower Corp. (AMT) and SBA Communications Corp. (SBAC), which have significant international operations, Crown Castle is a U.S.-only pure play.

"Crown is pure-play U.S., so they're just proportionately rewarded here," Rezaei said.

Rezaei currently has a $96 price target on Crown Castle and a $214 target on American Tower.

SPCX May Actually Be Validating The Cell Tower Model, Says Rezaei

Rezaei argues SpaceX's latest move into wireless points to the opposite of what investors have feared for years. Rather than undermining traditional terrestrial wireless infrastructure, Starlink's expansion could reinforce the need for cell towers, she said.

“Towers have been extremely depressed,” Rezaei said, pointing to concerns that satellite technology could eventually “eat terrestrial wireless networks.”

“I think the clear answer here is no,” she said.

Instead, SpaceX's push into wireless could demonstrate that satellite connectivity and terrestrial networks are complementary rather than competing technologies, Rezaei added.

“To us, this is sort of a signal that SpaceX is really endorsing the fact that you need terrestrial wireless networks for mobile to work,” she explained.

There is still a major question hanging over the opportunity: whether SpaceX ultimately builds its own terrestrial network.

Rezaei said there are three potential paths for SpaceX: it could build its own network, partner with an existing wireless carrier or potentially acquire another company.

Of those options, she believes a carrier partnership is the most likely, although the major wireless operators have so far been reluctant to give SpaceX the deal it wants.

"So what we're all trying to do is, like, a probability weighting of: are they going to build?" Rezaei said.

What Retail Investors Think Of CCI Stock

Retail sentiment on Stocktwits around Crown Castle trended in the ‘bullish’ territory at the time of writing.

SPCX stock is up 8% year-to-date, while CCI stock is down 10%. The S&P 500 ETF (SPY) is up 14% over the past 12 months, while the Vanguard Morningstar Total Stock Market ETF (VTI) is up 16%.

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